In conjunction with our Q4 Venture Financing Report, I sat down with Kate McAndrew of Baukunst to get her take on the state of venture capital investing.
Key insights from Kate McAndrew
On recent trends in early-stage financings: “[T]he fundamentals of investing and company building are coming back. For the most part, pre-seed rounds have reset to be in the $750,000 to $2.5 million range and priced in the $5 million to $12 million post-money range.
On growing a startup in the current economic climate: “[L]ean times make for lean teams – and that is an asset in the first years after company formation. It forces founders to determine who and what is essential. It makes for a focused, customer-obsessed culture. Those values will help you grow, scale and endure.”
On building relationships with founders and mentoring companies: “A big part of this work is personal. I try to get to know founders as whole people, not just CEOs or CTOs, and to build a real relationship with them. … And then, honesty is vital. … Ultimately, you need to be able to tell founders hard truths and be very honest about what is working and what is not.”
Before becoming a co-founder and general partner at Baukunst, you served as a partner at Bolt for several years. Could you tell us what inspired you to start your own firm, and share some of the challenges and opportunities in growing a technology-focused VC from the ground up?
I’m an entrepreneur at heart, so the simple answer is that I can’t imagine any other path than co-founding and running my own firm. The more complex answer is that in the past decade, I’ve seen the foundational phase of company building become dominated by party rounds, where investors place small bets, stand back and wait to discover if something is worth giving any real resources (or time) to. I think this presents a huge opportunity. Baukunst is committed to doing the opposite. We go all-in at pre-seed and lead every round we invest in. This strategy allows us to truly partner with founders – and play a meaningful role in a company’s first hires, first customers and first products. These early days are both exhilarating and incredibly consequential for the destiny of a business. I can’t think of a more rewarding approach to investing than to sit at the table with the creative technologists of our time and help them realize their vision.
I think our biggest challenge as a firm will be to avoid going to the middle of the road. There’s a reason all venture firms sound and look the same. It’s easier to do things the same way everyone else does. I’m focused on starting from first principles – and doing things in a way that truly addresses the need is authentic to who we are, and is interesting. It’s harder, but that’s the standard we’re pursuing.
In our data, we have seen downward trends in amounts raised during 2022 across all stages of financing, but it has been more significant in mid- to late-stage deals than at the early stage. As a firm that specializes in leading pre-seed rounds, are you seeing similar trends and, if so, why are early-stage rounds seeing less of a decline?
Mid- to late- stage rounds are paying the price for a lack of funding discipline and resulting operating rigor in the last few years. It’s pretty sad, actually. The good news for pre-seed is that it is, by definition, the beginning. We are largely unencumbered by this.
It’s been a breath of fresh air to see the market chill out. It is not healthyfor someone with a brand-name background, but no discernable exceptional qualities or strategy, to raise a $3 million pre-seed at $20 million post by hyping FOMO [fear of missing out]. That is not the behavior of a healthy ecosystem, and it causes all kinds of downstream problems.
I feel like the fundamentals of investing and company building are coming back. For the most part, pre-seed rounds have reset to be in the $750,000 to $2.5 million range and priced in the $5 million to $12 million post-money range. This is rational.
As part of a firm that invests in disruptive technologies, what predictions might you have on industries that stand to be most transformed in the coming years by new innovations? Are there any indications based on the younger companies that you look to invest in?
Right now, everyone is talking about generative AI, and rightfully so. It’s a broad technology shift that will impact all kinds of industries. As far as which of these industries will be fertile for enduring, venture-backed businesses, I don’t yet know. In any space, I’m always on the lookout for founders who are not only deeply technical, but who also have a unique point of view. At Baukunst, we call these people creative technologists. They’re the founders with a vision for how to apply a shift in technology to a cultural, generational or environmental insight. These are the people who ultimately have a transformative impact on how we live.
Typically, the markets that are most interesting to me are the ones that no one is talking about, or those that have become unfashionable. The power of discernment and in focusing on real business opportunities versus hype is critical if you invest at pre-seed. We have to think a minimum of 10 years out.
As co-founder of a new fund in its inaugural year, can you describe how the current economic climate has impacted your firm and its short-term goals? Have you seen any potential opportunities or positive trends as a result of this market disruption?
This is actually a great time to have a fresh fund because in lean environments, the “tourists” go away. Only the most committed builders remain, and that’s who we want to work with. We’re out to back the creative technologists of our time – the people who are obsessed with what they’re building and who won’t be deterred by anything happening in the macroclimate. In a quieter landscape, it’s easier for us to find these folks.
In terms of the companies we’re investing in, lean times make for lean teams – and that is an asset in the first years after company formation. It forces founders to determine who and what is essential. It makes for a focused, customer-obsessed culture. Those values will help you grow, scale and endure.
As a VC, do you have any advice on building successful relationships with your founders at the pre-seed stage of investing? What types of strategies does your firm employ to mentor these companies at such an important phase in their development?
A big part of this work is personal. I try to get to know founders as whole people, not just CEOs or CTOs, and to build a real relationship with them. Getting to know people on a deep level is a two-way street. I invite people into my world, and I’m excited to participate in theirs. I’ve had a founder come to dance class with me. And I’ve gone to dinner with a founder’s parents. I’m a fan of just doing stuff together.
And then, honesty is vital. I think there are some VCs who are focused on being likable. That may be OK in the short term, but it won’t stand the test of time. Ultimately, you need to be able to tell founders hard truths and be very honest about what is working and what is not. I expect to be able to give hard feedback and I’m willing to listen to critiques of myself. I don’t think being a great VC is simply about being a cheerleader for founders. A strong relationship with a founder has to involve openness and clear feedback.
At the beginning of any relationship, I ask three questions: Who are you? Why are you here? What are you doing? I often feel 50% of my value as an early-stage board member is surfacing those questions at the right time from a place of love.
About Kate McAndrew
Kate McAndrew is a co-founder and general partner at Baukunst, as well as the founder of Women in Hardware. Kate previously was a partner at Bolt, where she built the firm’s venture capital practice and community presence over two successful funds. She has more than a decade of experience as a first-round lead investor and board member with a focus on companies that are evolving the cultural conversation.
Kate graduated from McGill University with a degree in cultural studies/critical theory and analysis, and she lives in San Francisco.
Baukunst is a venture capital firm based in San Francisco, California. Founded in 2022 by Axel Bichara, Kate McAndrew, Matt Thoms and Tyler Mincey, the firm is a collective of creative technologists advancing the art of building companies at the frontiers of tech and design. The Baukunst partnership has shipped more than 50 first-generation technology products (including the first iPhone) and co-founded multiple startups.
Baukunst leads pre-seed rounds out of its inaugural $100 million fund.